British recovery retains strength

MANUFACTURERS scaled back their production unexpectedly last month, but longer-term trends and an upbeat survey of businesses by the Institute of Directors suggest that the recovery in industry still has considerable momentum.

Factory production fell by 0.5 per cent in March and is still 4 per cent below its peak before the recession began in spring 1990, according to the Central Statistical Office. But the CSO added that factory output was still rising at a trend rate of 3 per cent a year and had increased by 1.4 per cent in the first quarter, the fastest rate for five years.

March's fall in output was largely the result of sugar and mechanical engineering production falling back to more normal levels after unusually buoyant February figures. Sugar production dropped by more than 35 per cent after an unusually lengthy harvest.

On a quarterly basis, output growth was strongest in the engineering, rubber, wood and leather industries. Computer output rose by 10 per cent in the first quarter, telephones by 13 per cent, electrical components by 7.5 per cent and domestic electrical goods by 9 per cent. Output of plastic packaging rose by 13 per cent, perhaps reflecting buoyant retail sales.

Textiles, metals and mineral production all fell back. Output from the electrical, gas and water industries fell on a seasonally adjusted basis because an unusually mild winter followed a cold autumn. Oil and gas output rose to record levels and coal production continued to crumble.

A regional analysis of the last quarterly survey of manufacturers carried out by the Confederation of British Industry showed that output rose in every mainland region of Britain over the past four months, the first time this has happened for four years. Output is expected to rise in every region except Scotland and the North in the next four months.

The Institute of Directors also argued that industry was set for further expansion. Its latest bi- monthly survey reported the biggest increases in orders, business volumes and profits since the recovery began. The Treasury said it was particularly pleased that the survey showed more optimistic investment and employment intentions.

'After the stagnation of the first two months of this year the results of this survey are a positive sign that recovery is gathering pace,' said Peter Morgan, the IoD's director general. 'The unchanged levels of confidence reflect the uncertainty which business still feels about the extent of the recovery together with doubts about the current political scene.'